DHI - Embedded Expectations Analysis - 2020 01 08
D.R. Horton, Inc. (DHI:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 12.7x Uniform P/E, implying bearish expectations for the firm. While management's concerns about growth opportunities, margins, and underperforming markets suggest the potential for near-term headwinds, should DHI maintain profitability near current levels, longer-term upside remains warrantedSpecifically, management may lack confidence in their ability to sustain growth in home closings and active selling communities, maintain their margins, and reduce SG&A expenses as a percentage of homebuilding revenues. Moreover, they may be exaggerating the quality of the DHI Communities pipeline, the efficiency of their mortgage company, and their ability to consolidate market share while growing revenues and profits. Furthermore, they may lack confidence in their ability to improve in underperforming markets, find accretive acquisition opportunities, and meet Forestar growth expectations. Also, management may be overstating the quality of their supply partnerships, growth opportunities in the Midwest, and their ability to combat labor cost pressures
However, given management's confidence about their competitive advantages, demographic tailwinds, and financial services division, longer-term upside remains warranted
D.R. Horton is a homebuilding company. The company's business operations consist of homebuilding, a majority-owned residential lot development company, financial services and other activities. The company's financial services operations provide mortgage financing and title agency services to homebuyers in its homebuilding markets. The company's subsidiary, DHI Mortgage, provides mortgage financing services primarily to its homebuyers and generally sells the mortgages it originates and the related servicing rights to third-party purchasers. The company's subsidiary title companies serve as title insurance agents by providing title insurance policies, examination and closing services, primarily to its homebuyers.
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